$3trn fund giant Vanguard signs up to UN-backed Principles for Responsible Investment

World’s largest mutual fund firm raising profile in governance and engagement

The Vanguard Group, the US index fund giant, has become a signatory to the United Nations-backed Principles for Responsible Investment (PRI).

Vanguard, the largest mutual fund firm in the world with $3trn (€2.4trn) under management, is listed as one of the latest signatories on the PRI’s website. The Valley Forge, Pennsylvania-based firm was founded in 1975 and specializes in low-cost mutual funds and exchange traded funds (ETFs). It runs around 280 funds globally and has around 20m investor clients.
It comes as the firm, which is owned by the Vanguard funds themselves and which has more than 14,200 employees globally, has been raising its ESG profile recently.

In a speech last month (Sharing practical governance viewpoints), at the University of Delaware’s 
John Weinberg Center for Corporate Governance, Vanguard’s Chairman and CEO William McNabb explained how the firm, known for its passive investments, cares “a great deal” about governance at the companies it invests in. He pointed out that Vanguard funds own about 5% of every listed US firm – and about 1% of nearly every non-US company.

He said: “And remember, as indexers, we are permanent shareholders. To borrow a phase from Warren Buffett: Our favorite holding period is forever.”

He spoke of the importance of independent oversight and board composition, accountability, annual director elections and “sensible compensation tied to performance” – placing an emphasis on engagement. The firm sent out 923 letters to US companies in 2013 –of which 358 requested specific governance changes.

So far about 80 companies have adopted substantive changes (without having to go through a shareholder proposal), he added. McNabb also put forward the idea of creating ‘Shareholder Relations Committees’ on boards, to solicit investor views.

“As indexers, we are permanent shareholders”

Vanguard is also backing the new Shareholder-Director Exchange (SDX) initiative, which aims to be a platform for engagement about corporate governance and other important issues facing listed US companies. The firm’s Principal and Fund Controller, Glenn Booraem, sits on the SDX Working Group. “It’s a wonderful idea, and it has great promise,” said McNabb.

In February, sustainability advocacy group Ceres said Vanguard was among nine major fund providers that failed to support even a single climate-related resolution at company AGMs in 2013 (the others were BlackRock, BNY Mellon, Columbia, Fidelity, ING, Lord Abbett, Pioneer and Putnam). Ceres said Vanguard is the only provider that has never cast a single vote in support of a climate-related resolution in the past 10 years.

Other new signatories to the PRI include Sweden’s Skandia, Boston-based fixed income firm Longfellow Investment Management, Stichting Total Pensioenfonds Nederland, the Dutch pension fund of oil firm Total, SRI firm Green Century Capital Management and the University of St. Andrews in Scotland.